Advantages and Disadvantages of Privatisation 2

Topics: Privatization, Public sector, Public company Pages: 14 (4560 words) Published: June 10, 2013
ADVANTAGES AND DISADVANTAGES OF PRIVATISATION

Contents
1.0 INTRODUCTION1
2.0 ADVANTAGES OF PUBLIC SECTOR PRIVATISATION2
2.1 Improving Efficiencies2
2.2 Reduction in Government Cost and Spending3
2.3 Focusing on Core Competences3
2.4 Streamlining Businesses to Allow Productive Job Creations4
2.5 Obtaining Goal Congruences4
2.6 Effective Utilization of Taxpayers’ Money5
2.7 Generate Income Tax Revenue5
2.8 Improving Government Financing6
2.9 Reorganisation or Restructuring Government Systems and Performance Measures7
3.0 DISADVANTAGES OF PUBLIC SECTOR PRIVATISATION7
3.1 Possible Control of Foreign Entity on National Interests7
3.2 Monopoly Risks8
3.3 Management Incompetencies8
3.4 Misproprietion of Funds and Misuse of National Interests9
4.0 ADVANTAGES OF PUBLIC LISTING PRIVATISATION10
4.1 Focus on Core Competences such as Operations, Financing and Investments.10
4.2 Reduce Regulation Costs in the Long Term10
4.3 Reduction in Regulatory and Public Scrutinies11
4.4 Allow Effective Decision Making With Optimum Risk Apetite11
4.5 Focusing on Maximising Shareholder’s Wealth12
4.6 Reduction Interference of Minority Shareholders.12
5.0 DISADVANTAGES OF PUBLIC LISTING PRIVATISATION13
5.1 Costly13
5.2 Increase of Gearing and Reduction of Cash Holding.13
5.3 Reduction in Finance Pool14
5.4 Valuation of the Company would be costly and Might Not Reflected to True Market View14
5.5 Reduction of Shares Liquidity.15
6.0 CONCLUSION15

1.0 INTRODUCTION

Privatization currently is a hot story in our nation. There had been famous privatization which had attracted headlines recently such as FELDA and FELCRA, which open its shares for public listing. Hence it is quite important for us common people to comprehensively understand such issue. As per question there should be strong critical analyzation on advantages and disadvantages of the concerning move therefore appraised the question answerably. The microeconomic foundations of economies ensure that macroeconomic objectives are achieved. Stated differently, macroeconomic goals can only be achieved if there are robust institutions ensuring that microeconomic policies are designed, executed and monitored in accordance with the principles of transparency and good governance. Institutional strategies are not usually given a place of prominence in debates on national economic growth. Indeed, the importance of institutions is usually given a back seat and labelled as a 'soft' issue. In fact, as this paper will argue, the lack of a clear institutional framework may possibly have robbed Malaysia's privatisation drive of its full effectiveness. Privatization in general principle mean that shares available to public or belong to the public interest is given to private entity vehicle for specific purposes i.e. cost reduction and etc. There are two types of privatization.

1. Privatised public sector: Government public sector or agencies privatized into profit-making companies which the government had one golden share which give them exclusive stakeholders of the company i.e. public utilities(Felda and Tenaga Nasional Berhad).

2. Privatised public listing companies: Public listed companies privatized (making its shares unavailable in stock market hence buying remaining shares traded by legal considerations) i.e. Privatisation of Malakoff (utilities company) by DRB-Hicom.

2.0 ADVANTAGES OF PUBLIC SECTOR PRIVATISATION

2.1 Improving Efficiencies

Usually, due to layers of bureaucracy in hierarchal government systems, tasks or assignments are delegated towards huge supply of civil servants. Hence each government servants was not productive as they are not utilized as efficient as possible. This would create inefficiencies in completion of workloads. With privatisations, public sectors which become privatized entity would make effort in focusing its core competences, streamlining its businesses,...
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